The Kremlin expropriated Yukos in 2005; GML group was seeking $114 billion

A court in the Netherlands has ordered Russia to pay more than $50 billion in damages to the former shareholders of the now defunct Yukos oil corporation that was dismembered in a controversial bankruptcy case nearly a decade ago.

In the ruling Monday, the Permanent Court of Arbitration in The Hague said it would award GML group just under half of its $114-billion claim to help compensate for losses incurred when the Kremlin expropriated Yukos in 2005.

“This award is a major victory for us,” said Tim Osborne, director of GML. “After intense scrutiny, the tribunal confirmed what the claimants have been saying all along, namely that Yukos was destroyed, and its assets expropriated for political reasons.”

Sergei Lavrov, the Russian foreign minister, said Russia would appeal the ruling. Agencies representing Russia in the case would “use all available legal options to defend its position,” he said.

Once Russia’s biggest oil company, Yukos was crippled by alleged federal tax debts and sold off at bankruptcy auctions in 2006 and 2007. Rosneft, Russia’s state oil company, bagged most of Yukos’ best assets at the sales, which came as the Kremlin stepped up a campaign to reassert government control over the lucrative oil industry.

Mikhail Khodorkovsky, Yukos' founder, was sentenced in 2005 to 10 years in prison on charges of tax evasion and fraud that many observers believed were politically motivated to punish the billionaire tycoon for challenging the Kremlin’s increasingly authoritarian policies.

Yukos’ former shareholders, who promised Russia a “lifetime of legislation” when the company was seized, have been fighting for compensation for nearly a decade.

“This is a great day for the rule of law,” said Emmanuel Gaillard, the head of international arbitration at Shearman & Sterling, the New York-based legal firm. “A superpower like the Russian Federation is held accountable for its violations of international law by an independent tribunal of the highest possible caliber.”

In a statement Monday, Rosneft said it had not participated in the arbitration process and was not bound by the court's rulings. "Rosneft believes that all of its purchases of former Yukos assets, and all other actions taken by it with respect to Yukos were entirely lawful and proper," the statement said.

The court ruling comes at a difficult time for Russia, which is battling an economic contraction that has been exacerbated by fallout from the Ukraine crisis.

In the coming days, the European Union is expected to vote on a package of tough economic sanctions targeting the Russian oil, banking and defense sectors, in a bid to force the Kremlin to change its policies in Ukraine.

Under terms of the arbitration court ruling, Russia will be obliged to pay the compensation to Yukos shareholders by Jan. 15, 2015, or face additional demands for interest on the sum.